It allows us to better use gear, giving more flexibility by not capping caps on gear, but with gems. So upgrades are upgrades rather than "well it's better but I'd lose the hit cap". That's nice. But we have way way more sockets than we'd need for that. Why not instead have more things like belt buckles and maybe have an item or two which always has sockets? Because that would accomplish this first goal with few negative effects.

As you can see, gemming based on blacksmights adding sockets and a handful already on gear would make a decent bit for blacksmithing and a decent bit for jewelcrafting. But jewelcrafting was supposed to be the great new profession, so it must be profitable. A handful of sockets is not enough!

The driving force behind gem and socket design was not to help players use a wider array of gear. It was to move gold. The goal was to move gold from you to jewelcrafters. This resulted in lots and lots of sockets. Those sockets would have to be filled. And not just filled, but filled quickly, since when an item has two or three sockets on it, particularly meta gem sockets, the upgrade isn't an upgrade until that socket is filled. This puts players in a rushed state, accelerating the natural desire for quick results, to the point where players will willingly pay for hugely profitable gems, and lots of them.

It's time to nerf jewelcrafting. Just give a little service to tailors, leatherworkers, and blacksmiths: ripping gems out of gear, destroying it in the process. Yes, that's another idea I ripped from Torchlight. One of the NPCs in the game can destroy a gem to free up a socket (a service that we don't need since new gems can do that) while another can tear apart an item to liberate the gems inside. That second one would be more than a little bit valuable, and would significantly reduce the need for new gems every time an item is upgraded. This would actually destroy the market entirely, meaning that players would only need a few dozen gems ever, which is perhaps excessive. So instead the gem recovery process could scratch them, meaning turning them into uncut gems which would need to be recut. This at least cuts out the perpetual prospecting gold mine. It also hurts mining. But there's an easy fix for that: buff engineering.

It's hardly that simple. The gem market does not handle competition well, since competition causes failed auctions. Since gems have a high vendor value, they also have a high deposit cost, meaning that lost deposits can quickly wipe out profits. That risk drives people away, creating a market with very few sellers.

Giving for free is just the lowest possible sell price. They are competition. Think of how many people are not on the AH buying because someone is crafting for free. Those are all lost customers.

Call them morons, but the small communist collectives that people form make a great deal of sense. They can avoid AH fees, meaning more gold at the end of the day for repairs or luxury items, or just not needing to do as many dailies.

Inscription has the opposite problem. The deposit is so ridiculously low compared to profits that campers are encouraged to cancel and repost, driving away people who don't feel like wasting time playing accountant.

While I agree that the AH deposit cost plays a role, I think the profitability of gem cutting is being overstated. The bulk of the revenue of the cut gem goes to the cost of the uncut gem (in my experience, 70-90% of the cost), and except for prospecting, a JC is a buyer and not a supplier in the raw gem market. The bulk of the gold transfer for a cut gem goes to seller of the raw gem and not the JC who cut it.

Besides, if the core problem is a thin market, introducting a secondary market from reusing gems seems to be suboptimal. Instead, reduce the vendor price of the gems to reduce the AH deposit to encourage more suppliers.

If I get 10g from a 100g total sale and you get the remaining 90g, that doesn't tell the profitability. How long did it take you to get your portion of the 100g? If it took me 60 seconds to buy, cut, and sell, while it took you 10 minutes, or 600 seconds, I'm ahead in terms of gold/hour.

if I farm honor or jp for a gem thinking it will fetch 90g and when I go to sell it, the market is 81g instead of 90g, then my g/hr goes down 10%.

If I cut a gem that I buy for 90g expecting to sell for 100g and the market goes down to 90g, I make nothing.

I don't think there's much of a problem with jc's making 10-20g per cut. You pay 5g in trade to get it cut anyway (unless you are an ass and don't tip decently), and then you have to wait for them, or run around, etc. if I can just buy it on the ah for an extra 5-10g a gem, that's simpler.